The Evil Caller Case Study
ALFRED CHANDLER, THE VISIBLE HAND BACKGROUND AND STUDY POINTS The US valorizes the free market and entrepreneurial skill, but capitalism is not the same in every country. Each nation has had its own path to industrial development. The American path was distinctive. First, the size of the country provided an opportunity to entrepreneurs simply unavailable to their competitors in England, France, Germany, or Belgium. The challenge was to develop the means to deliver products to customers all across the US. Once that could be achieved, the volume of production would lead to a rapid decline in unit prices and high profits based on quality goods becoming more affordable. Second, family ownership proved to be less important in the overall than the
…show more content…
development of a management cadre. A national economy in the US encouraged the development of large-scale firms that far exceeded the ability of any one person or any family to run. An administrative sector emerged that looked at the firms within which they worked from a different perspective of the owners. The key question was: How to develop predictability? The answer seemed to be to increase the scale and scope of production and marketing, both possible within US boundaries with a relatively large population earning relatively high wages. The managerial revolution was backed up by development of a national government in which courts and regulatory agencies became the most powerful instruments of economic policy. Chandler details three features essential to realizing the full potential of the U.S. national market: First, the emergence of the railroads and their extension, with government subsidy, across every state. Secondly, the development of national marketing firms that because of the expansion of the transportation system could jump into every regional market within the country and compete with local merchants by offering goods at lower prices. Third, marketing led to the development advertising and the organization of national media, whose primary purpose was to sell the products of advertisers. Mass-circulation periodicals emerge first in the 1890s, growing each decade thereafter until the 1950s. Editorial copy and advertising and ultimately the advertising most important. Along with newspaper chains and national magazines, there developed national books, lecture circuits, films, and after 1920 radio markets. The national media linked every community and allowed Americans to think of themselves as being effected directly by events in other parts of the country. National politics increasingly became as important as state and local politics, and indeed the nation seemed to be the place where the most pressing problems should be addressed, even though the constitutional structure at the federal level had been designed to frustrate the development of a strong central power.
Chandler argues that the modern business enterprise of the late 19th and early 20th centuries sought to protect itself from the free play of market mechanisms by coordinating the activities of the economy and allocating its resources. The formation of trusts and cartels was one strategy (what came to dominate capitalism in Germany and Japan), but the American approach favored what Chandler calls the “visible hand” of management. Managers developed techniques for the organization of resources, the evaluation of costs and outcomes, as well as methods for predicting how controlling variables will affect the process, the end product, and the bottom line. If it sounds like engineering, that’s because the first truly national enterprises were railroads and they were started by engineers, not by men with expertise in either production or sales. They adapted the principles they had learned in construction to the modeling of business problems, and the pioneers of the American railroad repudiated the tried and true customs that had governed English and American commerce since the 17th century. Chandler presented eight propositions on American managerial capitalism in The Visible Hand. (1) Modern multiunit business enterprises replaced small, traditional enterprises when administrative coordination permitted greater productivity, lower costs, and high profits than coordination by market mechanisms. Human relations replaced by assessment of variables. (2) Advantages of internalizing the activities of many business units within a single enterprise could not be realized until a managerial hierarchy had been created. Individual and departments had to be made responsible for specific activities within the company, and they had to be accountable, that is a manager could be fired if things didn’t work out. Family owned enterprises resisted division of authority, and accountability was based on family loyalty rather than individual performance. (3) Modern business enterprise appeared when the volume of economic activities reached a level that made administrative coordination more efficient and more profitable than market coordination. Extensive geographic operations was a must. (4) The managerial hierarchy became a source of permanence, power, and continued growth. Managers as a group selected their subordinates and promoted them up the ladder. Loyalty to managerial prerogative competes with loyalty to the firm, though the firm must do well if the prerogatives are to be maintained. This tended to be true even in firms like Standard Oil or the Ford Motor Company where family dynasties remained active in managing the company. Family owners tended to become more like managers, in part because they depended upon managers for the continued health of the corporation. Stable, predictable if slow rates of growth preferred to ventures that might have high yields but involved above-average levels of risk. Managerial capitalism became conservative in terms of investment strategies. Avoiding credit was absolutely essential, and the stock market provided an alternative source of new
capital with investors supporting the growth of the company who were essentially powerless as far as decision-making was concerned.
The growth of the stock market also meant the relative decline of importance of family owners even when they remained. Wealthy families tended to diversify their holdings to protect themselves against market fluctuations. (5) The careers of salaried managers became increasingly technical and professional. They were trained to evaluate results and find the right solutions to problems. (6) Management separated from ownership. (7) In making administrative decisions, career managers preferred policies that favored long-term stability and growth of their enterprises to those that maximized current profits. (8) As large enterprises grew, they altered the basic structure of major sectors of the economy as a whole. The traditional way of looking at business history was to describe how firms grew. Vertical and horizontal integration as the results of a dynamic of growth for its own sake, capital needed to be invested and keep growing. Vertical and horizontal integration were strategies aimed at securing resources, improving access to market, but not ends in themselves. The strategy chosen followed from how best to secure stable resources, land, labor, or markets within an effective operating ratio. The managerial revolution and the methods adapted for assessing performance were more important than an abstract process of growth. Railroads were the first modern business enterprise to develop in the US, with a modern managerial class. Aside from makers of electrical equipment, few manufacturers needed outside funds until the 1890s. New York financial markets developed principally through sale of railroad bonds and stocks. Railroads gave impetus to large-scale construction firms and modern investment banking houses. Railroad management did not come out of the business community of the time. They had engineering backgrounds, many had attended West
Point, but the engineering approach to problem solving was more important to America than just military. The operating ratio rather than the rate of return became the basic tool for analyzing the financial performance of railroad enterprises. What does that mean? Overall accounting of profit and loss was not enough. Earnings had to be related to the volume of business. Railroad managers evaluated performance by measuring the ration between operating revenues and expenditures, or more precisely, the percentage of gross revenue that had been needed to meet operating costs. Such ratios had never before been used by American businessmen. Today, they remain a basic standard for judging the performance of many American enterprises. Financial capital (banks, insurance companies, stock brokerages) helped to consolidate the managerial revolution in American industry. For example, J. P. Morgan, the leading financier of Wall Street in the late 19th century, insisted on financial and administrative reforms within any firm his company financed. Along with the reforms, Morgan insisted
on the right to appoint the presidents and members of the boards of directors. Entrepreneurs were replaced by managers, whose loyalty was to the long-term stability of the firm, not maximum profit or rate of return. Morgan lowered the fixed charges on the bonded debt of the firms he acquired by converting bonds into preferred stock. Common stock issues were reduced through exchanging four, five, or more shares of the old stock for new stock issues. In issuing new securities the amounts were based on the earning power of the firm as indicated by its operating ratio, not its profit/loss balances. As financiers extended their influence in American business, the managerial revolution spread from railroads into other firms. The second aspect of the development of the American national market was the rise of modern marketing. In the 1850s and 1860s, the modern commodity dealer took over marketing and distribution of agricultural products. At the same time the full-line, fullservice wholesaler began to market most standardized consumer goods. In the 1870s and 1880s, the modern mass retailer--department stores, mail-order houses, and chain stores-emerged. The efficiency of mass retailing enterprises in reducing margins and prices was one reason for the loud outcry of small businessmen against big business from 1880 on. Revolution in production followed the revolution in distribution, because without a guaranteed market on a much larger scale, industrialists had no incentive to make the expensive investments that typically required going to people like J. P. Morgan to secure the capital needed. But as markets expanded in scope, manufacturers who did not upgrade their technological capacities went under, because their lower-quality goods cost more than their competition, or they declined into a tertiary, less profitable, more risky sector of the economy. Technological innovation in the US was not simply a product of Yankee ingenuity but made feasible and perhaps necessary by previous organizational innovation. The third aspect was the development of advertising as a way of maintaining a steady stream of customers. Market saturation was block to further development. Once a company had expanded throughout the national market, the next step could be finding markets overseas, but incomes abroad were lower and the increased sales might not be worth the expense and uncertainty of foreign trade. Introducing new products or product innovations was another strategy for expanding markets, as was lowering costs through technological innovation so there would be new customers within the US who previously had not been able to afford a company’s product. First set of consumers for American industry were the railroads and farmers seeking to modernize their production capabilities. This supported growth of steel and heavy machinery. Sewing machines and other light industrial goods were also sold initially to farm families. The development of national marketing outlets like Sears were aimed at rural population engaging in global agricultural markets... mail order business. Growth of urban industry led new markets of skilled working-class and middle-class families, and to a lesser degree, semi-skilled working-class families. Forty percent of urban population stood outside developing consumer market, but the other sixty percent provided a strong growth area.
Advertising emerged as a way of developing and shaping both the rural and the urban consumermarkets. First advertising agencies were founded in the 1860s and 1870s, and their job wasto place ads for farm machinery in journals that farmers read. Most journals were stilllocal, and national journals had very small readerships until the 1890s. This began tochange as new leaders in advertising saw that the promotion of goods across the nationalmarket would be easier if their media spanned across many local markets. To encouragethis process meant showing would-be investors the profit potential. Two key figures in US advertising history: George P. Rowell and Francis Wayland Ayer. Rowell saw the biggest problem facing advertising was the difficulty of knowing what an advertisement was really worth. The prices periodicals charged were arbitrary and no one involved could state with any certainty who the readers of a periodical were or even how many they were. To remedy this Rowell started Rowell’s American Newspaper Directory in 1869 and then the trade journal Printers’ Ink in 1888. His goal was to establish procedures for setting advertising rates. He set out to find out everything he could about American newspapers, from country weeklies to the largest urban dailies: the number of each printed, the number actually sold, the quality of the paper, the editor’s politics, the likely readership in each community (not just numbers of readers but who). His directory packaged this detailed information by region and by type of publication (small-town papers in upstate New York, religious papers, farm journals, etc.). Rowell offered his directory to advertisers who used his agency for a fraction of what it had cost to prepare, but he made up for his losses by becoming the advertising agency for firms all across the country who wanted greater security in reaching their targeted audiences. Indeed, Rowell’s innovation brought into being for the first time, the idea of a target audience. Rowell’s focus on circulation statistics also took advantage of the growing vogue of statistics as a scientific method. If it was good enough for engineering, Frederick Taylor thought it wouldbe good enough for business. Rowell’s agency developed a new pattern for advertisingagencies: rather than selling space for publications, his primary task was to advise the space buyer how and where his money would be most effectively spent, one of the basic tasks of advertising agencies today. Printers’ Ink expanded the services Rowell offered advertisers: outlining the science of calculating an advertising budget, promoting new methods of packaging and promoting products to reach remote and scattered buyers. He promoted the use of packaging to replace bulk sales at stores. Rowell established the concept of brand marketing and was among the first to argue that products would sell better if identified with rationality and progress. He promoted the use of warranties so that customers could feel a measure of protection in making what were often expensive purchases. “Let the buyer beware” was a concept that Rowell argued was outmoded, markets could not grow if buyers lacked assurance that they would receive their money’s worth. The thrust of “let the buyer beware” shifted to learning how to read advertising intelligently. Francis Wayland Ayer was the second founder of modern American advertising. In 1869, Ayer started N.W. Ayer & Son, naming the firm for his schoolmaster father. Ayer
turned his firm into the most respected advertising agency in the world. His innovation was ditching the commission system, in which agencies acted as middle-men between advertisers and publishers. Ayer developed the current system by which advertising agencies sign contracts with advertisers and exclusively represent their interests. Quickly as a result of this change in relationship, Ayer’s firm started to design the advertising it placed for its clients. The advertising agency became a place where a variety of professionals worked together to help firms sell their products. Ayer’s firm conducted the first marketing survey in 1878, compiling crop statistics and newspaper circulations for Nichols-Shephard Agricultural Implements. After 1880, Ayer decided his firm would deal only with national firms and dropped all contracts with local businesses. He hired artists and writers to prepare ads shaped by the marketing information his surveys were discovering. To expand the power of his advertising, he gave preferential treatment to publishers who expanded nationally. He invested in Curtis publications, a Philadelphia based magazine firm, whose middle-class journals Saturday Evening Post and Ladies’ Home Journal were the first mass-media journals to reach over 100,000 subscribers and to develop a national distribution. Rowell’s information on periodicals and Ayer’s information on customers provided entrepreneurs like William Randolph Hearst what they needed to know to buy local periodicals intelligently and to construct national chains of publications that shared common editorial policies, many national and international stories, and most importantly from the business point of view, would have a stable of national advertisers willing to pay top dollar to reach into many local markets simultaneously.
Alfred D. Chandler, Jr.
Alfred Du Pont Chandler, Jr. (born 1918) was an American historian who specialized in both the biographies of American business leaders and in the organization and administration of large scale industrial enterprises. Alfred Du Pont Chandler, Jr., was born in Guyencourt, Delaware, on September 15, 1918, the son of Alfred DuPont and Carol Remsay Chandler. He was educated at Harvard, receiving his B.A. in 1940 just in time to join the United States Navy. While serving in the navy, in 1944 he married Kay Martin. Mustered out in 1945, Chandler returned to Harvard to study history, earning his M.A. in 1947 and his Ph.D. in 1952. His professional career began at the Massachusetts Institute of Technology in 1950 where he was a research associate. He then became a faculty member and remained at M.I.T. until 1963, with time off to be a research fellow at Harvard in 1953 and a Guggenheim Fellow in 1958. Chandler served an apprenticeship as assistant editor of The Letters of Theodore Roosevelt under Elting M. Morison and John M. Blum from 1950 to 1953. This was later to stand him in good stead when an opportunity arose to edit the Eisenhower Papers. His first book was a biography, Henry Varnum Poor, Business Editor, Analyst, and Reformer (1956), which was indicative of his interest in the history of businessmen, businesses, and business organizations. This book also showed his belief in the middle-class nature of reform movements in the United States. While at M.I.T. Chandler also served as an academic consultant to the Naval War College in 1954. His second book, Strategy and Structure: Chapters in the History of the Industrial Enterprise, was a study in organizational behavior which won a Newcomen Award for 1962. It also furthered his reputation as a business historian, and the following year he moved to Johns Hopkins University. At Johns Hopkins Chandler continued his productivity even though he took on the added responsibilities of director of the Center for Study of Recent American History in 1964 and of department chairman in 1966. He also became chairman of the Historical Advisory Committee of the U.S. Atomic Energy Commission in 1969, a post he held until 1977. While busy with these administrative tasks, Chandler still found time to write. In 1964 he published Giant Enterprise: Ford, General Motors and the Automotive Industry, and in 1965 he edited a book entitled The Railroads. His major intellectual energy, however, was devoted to the editing of The Papers of Dwight David Eisenhower, which appeared in five volumes in 1970. His assistant editor, Steven B. Ambrose, became a noted Eisenhower scholar. In 1970 Chandler was the Thomas Henry Carroll Ford Foundation Visiting Fellow at Harvard. He remained at Harvard as the Strauss Professor of Business History in the Graduate School of Business, although he was also a visiting fellow at All Souls, Oxford, and a visiting professor at the European Institute of Washington. The same year he was a visiting fellow at Harvard he also
was a member of the National Advertising Council's Committee on Educational and Professional Development. During his tenure at Harvard, Chandler continued to write. In 1971, along with Stephen Salsbury, he published Pierre S. du Pont and the Making of the Modern Corporation. In 1977 he published what was his most famous book, The Visible Hand: The Managerial Revolution in American Business. The book was a culmination of Chandler's thinking on the operation of American business and earned the Pulitzer and Bancroft prizes in 1978. These were not the only honors Chandler garnered. He was a member of the American Philosophical Society and a Fellow of the American Academy of Arts and Sciences. In 1977-1978 he served as president of the Business History Conference. The most fitting accolade is that of John Higham, who exempted Chandler from "the deadly blight" which had prevented other senior historians from doing their culminating work in the 1960s and 1970s. Since that time he wrote The Essential Alfred Chandler: Essays Toward a Historical Theory of Big Business (1988), and his Scale and Scope: The Dynamics of Industrial Capitalism was written with the assistance of Takashi Hikino (1990). Scale and Scope was hailed as an indispensable historical reference spanning three-quarters of the twentieth century. In the book Chandler compares the European business environment with that of the United States. He evaluated the significance of business structure to performance and success in the marketplace. Chandler was dubbed the "dean of American business history" by Financial World in 1991. Alfred D. Chandler, Jr. retired from the Harvard Business School on June 30, 1989. Further Reading There is a scarcity of material on Chandler. John Higham's favorable comment is from the epilogue of his 1983 edition of History, but it is only a brief consideration. Equally brief are the references to Chandler in Georg G. Iggers and Harold T. Parker, International Handbook of Historical Studies (1979). Additional Sources Chandler, Alfred D. Jr., The Essential Alfred Chandler: Essays Toward a Historical Theory of Big Business, Harvard Business School Press, 1988. Chandler, Alfred D. Jr., Scale and Scope: The Dynamics of Industrial Capitalism, Belknap Press, 1990. Forbes, November 13, 1989. The New Republic, December 10, 1990.
development of a management cadre. A national economy in the US encouraged the development of large-scale firms that far exceeded the ability of any one person or any family to run. An administrative sector emerged that looked at the firms within which they worked from a different perspective of the owners. The key question was: How to develop predictability? The answer seemed to be to increase the scale and scope of production and marketing, both possible within US boundaries with a relatively large population earning relatively high wages. The managerial revolution was backed up by development of a national government in which courts and regulatory agencies became the most powerful instruments of economic policy. Chandler details three features essential to realizing the full potential of the U.S. national market: First, the emergence of the railroads and their extension, with government subsidy, across every state. Secondly, the development of national marketing firms that because of the expansion of the transportation system could jump into every regional market within the country and compete with local merchants by offering goods at lower prices. Third, marketing led to the development advertising and the organization of national media, whose primary purpose was to sell the products of advertisers. Mass-circulation periodicals emerge first in the 1890s, growing each decade thereafter until the 1950s. Editorial copy and advertising and ultimately the advertising most important. Along with newspaper chains and national magazines, there developed national books, lecture circuits, films, and after 1920 radio markets. The national media linked every community and allowed Americans to think of themselves as being effected directly by events in other parts of the country. National politics increasingly became as important as state and local politics, and indeed the nation seemed to be the place where the most pressing problems should be addressed, even though the constitutional structure at the federal level had been designed to frustrate the development of a strong central power.
Chandler argues that the modern business enterprise of the late 19th and early 20th centuries sought to protect itself from the free play of market mechanisms by coordinating the activities of the economy and allocating its resources. The formation of trusts and cartels was one strategy (what came to dominate capitalism in Germany and Japan), but the American approach favored what Chandler calls the “visible hand” of management. Managers developed techniques for the organization of resources, the evaluation of costs and outcomes, as well as methods for predicting how controlling variables will affect the process, the end product, and the bottom line. If it sounds like engineering, that’s because the first truly national enterprises were railroads and they were started by engineers, not by men with expertise in either production or sales. They adapted the principles they had learned in construction to the modeling of business problems, and the pioneers of the American railroad repudiated the tried and true customs that had governed English and American commerce since the 17th century. Chandler presented eight propositions on American managerial capitalism in The Visible Hand. (1) Modern multiunit business enterprises replaced small, traditional enterprises when administrative coordination permitted greater productivity, lower costs, and high profits than coordination by market mechanisms. Human relations replaced by assessment of variables. (2) Advantages of internalizing the activities of many business units within a single enterprise could not be realized until a managerial hierarchy had been created. Individual and departments had to be made responsible for specific activities within the company, and they had to be accountable, that is a manager could be fired if things didn’t work out. Family owned enterprises resisted division of authority, and accountability was based on family loyalty rather than individual performance. (3) Modern business enterprise appeared when the volume of economic activities reached a level that made administrative coordination more efficient and more profitable than market coordination. Extensive geographic operations was a must. (4) The managerial hierarchy became a source of permanence, power, and continued growth. Managers as a group selected their subordinates and promoted them up the ladder. Loyalty to managerial prerogative competes with loyalty to the firm, though the firm must do well if the prerogatives are to be maintained. This tended to be true even in firms like Standard Oil or the Ford Motor Company where family dynasties remained active in managing the company. Family owners tended to become more like managers, in part because they depended upon managers for the continued health of the corporation. Stable, predictable if slow rates of growth preferred to ventures that might have high yields but involved above-average levels of risk. Managerial capitalism became conservative in terms of investment strategies. Avoiding credit was absolutely essential, and the stock market provided an alternative source of new
capital with investors supporting the growth of the company who were essentially powerless as far as decision-making was concerned.
The growth of the stock market also meant the relative decline of importance of family owners even when they remained. Wealthy families tended to diversify their holdings to protect themselves against market fluctuations. (5) The careers of salaried managers became increasingly technical and professional. They were trained to evaluate results and find the right solutions to problems. (6) Management separated from ownership. (7) In making administrative decisions, career managers preferred policies that favored long-term stability and growth of their enterprises to those that maximized current profits. (8) As large enterprises grew, they altered the basic structure of major sectors of the economy as a whole. The traditional way of looking at business history was to describe how firms grew. Vertical and horizontal integration as the results of a dynamic of growth for its own sake, capital needed to be invested and keep growing. Vertical and horizontal integration were strategies aimed at securing resources, improving access to market, but not ends in themselves. The strategy chosen followed from how best to secure stable resources, land, labor, or markets within an effective operating ratio. The managerial revolution and the methods adapted for assessing performance were more important than an abstract process of growth. Railroads were the first modern business enterprise to develop in the US, with a modern managerial class. Aside from makers of electrical equipment, few manufacturers needed outside funds until the 1890s. New York financial markets developed principally through sale of railroad bonds and stocks. Railroads gave impetus to large-scale construction firms and modern investment banking houses. Railroad management did not come out of the business community of the time. They had engineering backgrounds, many had attended West
Point, but the engineering approach to problem solving was more important to America than just military. The operating ratio rather than the rate of return became the basic tool for analyzing the financial performance of railroad enterprises. What does that mean? Overall accounting of profit and loss was not enough. Earnings had to be related to the volume of business. Railroad managers evaluated performance by measuring the ration between operating revenues and expenditures, or more precisely, the percentage of gross revenue that had been needed to meet operating costs. Such ratios had never before been used by American businessmen. Today, they remain a basic standard for judging the performance of many American enterprises. Financial capital (banks, insurance companies, stock brokerages) helped to consolidate the managerial revolution in American industry. For example, J. P. Morgan, the leading financier of Wall Street in the late 19th century, insisted on financial and administrative reforms within any firm his company financed. Along with the reforms, Morgan insisted
on the right to appoint the presidents and members of the boards of directors. Entrepreneurs were replaced by managers, whose loyalty was to the long-term stability of the firm, not maximum profit or rate of return. Morgan lowered the fixed charges on the bonded debt of the firms he acquired by converting bonds into preferred stock. Common stock issues were reduced through exchanging four, five, or more shares of the old stock for new stock issues. In issuing new securities the amounts were based on the earning power of the firm as indicated by its operating ratio, not its profit/loss balances. As financiers extended their influence in American business, the managerial revolution spread from railroads into other firms. The second aspect of the development of the American national market was the rise of modern marketing. In the 1850s and 1860s, the modern commodity dealer took over marketing and distribution of agricultural products. At the same time the full-line, fullservice wholesaler began to market most standardized consumer goods. In the 1870s and 1880s, the modern mass retailer--department stores, mail-order houses, and chain stores-emerged. The efficiency of mass retailing enterprises in reducing margins and prices was one reason for the loud outcry of small businessmen against big business from 1880 on. Revolution in production followed the revolution in distribution, because without a guaranteed market on a much larger scale, industrialists had no incentive to make the expensive investments that typically required going to people like J. P. Morgan to secure the capital needed. But as markets expanded in scope, manufacturers who did not upgrade their technological capacities went under, because their lower-quality goods cost more than their competition, or they declined into a tertiary, less profitable, more risky sector of the economy. Technological innovation in the US was not simply a product of Yankee ingenuity but made feasible and perhaps necessary by previous organizational innovation. The third aspect was the development of advertising as a way of maintaining a steady stream of customers. Market saturation was block to further development. Once a company had expanded throughout the national market, the next step could be finding markets overseas, but incomes abroad were lower and the increased sales might not be worth the expense and uncertainty of foreign trade. Introducing new products or product innovations was another strategy for expanding markets, as was lowering costs through technological innovation so there would be new customers within the US who previously had not been able to afford a company’s product. First set of consumers for American industry were the railroads and farmers seeking to modernize their production capabilities. This supported growth of steel and heavy machinery. Sewing machines and other light industrial goods were also sold initially to farm families. The development of national marketing outlets like Sears were aimed at rural population engaging in global agricultural markets... mail order business. Growth of urban industry led new markets of skilled working-class and middle-class families, and to a lesser degree, semi-skilled working-class families. Forty percent of urban population stood outside developing consumer market, but the other sixty percent provided a strong growth area.
Advertising emerged as a way of developing and shaping both the rural and the urban consumermarkets. First advertising agencies were founded in the 1860s and 1870s, and their job wasto place ads for farm machinery in journals that farmers read. Most journals were stilllocal, and national journals had very small readerships until the 1890s. This began tochange as new leaders in advertising saw that the promotion of goods across the nationalmarket would be easier if their media spanned across many local markets. To encouragethis process meant showing would-be investors the profit potential. Two key figures in US advertising history: George P. Rowell and Francis Wayland Ayer. Rowell saw the biggest problem facing advertising was the difficulty of knowing what an advertisement was really worth. The prices periodicals charged were arbitrary and no one involved could state with any certainty who the readers of a periodical were or even how many they were. To remedy this Rowell started Rowell’s American Newspaper Directory in 1869 and then the trade journal Printers’ Ink in 1888. His goal was to establish procedures for setting advertising rates. He set out to find out everything he could about American newspapers, from country weeklies to the largest urban dailies: the number of each printed, the number actually sold, the quality of the paper, the editor’s politics, the likely readership in each community (not just numbers of readers but who). His directory packaged this detailed information by region and by type of publication (small-town papers in upstate New York, religious papers, farm journals, etc.). Rowell offered his directory to advertisers who used his agency for a fraction of what it had cost to prepare, but he made up for his losses by becoming the advertising agency for firms all across the country who wanted greater security in reaching their targeted audiences. Indeed, Rowell’s innovation brought into being for the first time, the idea of a target audience. Rowell’s focus on circulation statistics also took advantage of the growing vogue of statistics as a scientific method. If it was good enough for engineering, Frederick Taylor thought it wouldbe good enough for business. Rowell’s agency developed a new pattern for advertisingagencies: rather than selling space for publications, his primary task was to advise the space buyer how and where his money would be most effectively spent, one of the basic tasks of advertising agencies today. Printers’ Ink expanded the services Rowell offered advertisers: outlining the science of calculating an advertising budget, promoting new methods of packaging and promoting products to reach remote and scattered buyers. He promoted the use of packaging to replace bulk sales at stores. Rowell established the concept of brand marketing and was among the first to argue that products would sell better if identified with rationality and progress. He promoted the use of warranties so that customers could feel a measure of protection in making what were often expensive purchases. “Let the buyer beware” was a concept that Rowell argued was outmoded, markets could not grow if buyers lacked assurance that they would receive their money’s worth. The thrust of “let the buyer beware” shifted to learning how to read advertising intelligently. Francis Wayland Ayer was the second founder of modern American advertising. In 1869, Ayer started N.W. Ayer & Son, naming the firm for his schoolmaster father. Ayer
turned his firm into the most respected advertising agency in the world. His innovation was ditching the commission system, in which agencies acted as middle-men between advertisers and publishers. Ayer developed the current system by which advertising agencies sign contracts with advertisers and exclusively represent their interests. Quickly as a result of this change in relationship, Ayer’s firm started to design the advertising it placed for its clients. The advertising agency became a place where a variety of professionals worked together to help firms sell their products. Ayer’s firm conducted the first marketing survey in 1878, compiling crop statistics and newspaper circulations for Nichols-Shephard Agricultural Implements. After 1880, Ayer decided his firm would deal only with national firms and dropped all contracts with local businesses. He hired artists and writers to prepare ads shaped by the marketing information his surveys were discovering. To expand the power of his advertising, he gave preferential treatment to publishers who expanded nationally. He invested in Curtis publications, a Philadelphia based magazine firm, whose middle-class journals Saturday Evening Post and Ladies’ Home Journal were the first mass-media journals to reach over 100,000 subscribers and to develop a national distribution. Rowell’s information on periodicals and Ayer’s information on customers provided entrepreneurs like William Randolph Hearst what they needed to know to buy local periodicals intelligently and to construct national chains of publications that shared common editorial policies, many national and international stories, and most importantly from the business point of view, would have a stable of national advertisers willing to pay top dollar to reach into many local markets simultaneously.
Alfred D. Chandler, Jr.
Alfred Du Pont Chandler, Jr. (born 1918) was an American historian who specialized in both the biographies of American business leaders and in the organization and administration of large scale industrial enterprises. Alfred Du Pont Chandler, Jr., was born in Guyencourt, Delaware, on September 15, 1918, the son of Alfred DuPont and Carol Remsay Chandler. He was educated at Harvard, receiving his B.A. in 1940 just in time to join the United States Navy. While serving in the navy, in 1944 he married Kay Martin. Mustered out in 1945, Chandler returned to Harvard to study history, earning his M.A. in 1947 and his Ph.D. in 1952. His professional career began at the Massachusetts Institute of Technology in 1950 where he was a research associate. He then became a faculty member and remained at M.I.T. until 1963, with time off to be a research fellow at Harvard in 1953 and a Guggenheim Fellow in 1958. Chandler served an apprenticeship as assistant editor of The Letters of Theodore Roosevelt under Elting M. Morison and John M. Blum from 1950 to 1953. This was later to stand him in good stead when an opportunity arose to edit the Eisenhower Papers. His first book was a biography, Henry Varnum Poor, Business Editor, Analyst, and Reformer (1956), which was indicative of his interest in the history of businessmen, businesses, and business organizations. This book also showed his belief in the middle-class nature of reform movements in the United States. While at M.I.T. Chandler also served as an academic consultant to the Naval War College in 1954. His second book, Strategy and Structure: Chapters in the History of the Industrial Enterprise, was a study in organizational behavior which won a Newcomen Award for 1962. It also furthered his reputation as a business historian, and the following year he moved to Johns Hopkins University. At Johns Hopkins Chandler continued his productivity even though he took on the added responsibilities of director of the Center for Study of Recent American History in 1964 and of department chairman in 1966. He also became chairman of the Historical Advisory Committee of the U.S. Atomic Energy Commission in 1969, a post he held until 1977. While busy with these administrative tasks, Chandler still found time to write. In 1964 he published Giant Enterprise: Ford, General Motors and the Automotive Industry, and in 1965 he edited a book entitled The Railroads. His major intellectual energy, however, was devoted to the editing of The Papers of Dwight David Eisenhower, which appeared in five volumes in 1970. His assistant editor, Steven B. Ambrose, became a noted Eisenhower scholar. In 1970 Chandler was the Thomas Henry Carroll Ford Foundation Visiting Fellow at Harvard. He remained at Harvard as the Strauss Professor of Business History in the Graduate School of Business, although he was also a visiting fellow at All Souls, Oxford, and a visiting professor at the European Institute of Washington. The same year he was a visiting fellow at Harvard he also
was a member of the National Advertising Council's Committee on Educational and Professional Development. During his tenure at Harvard, Chandler continued to write. In 1971, along with Stephen Salsbury, he published Pierre S. du Pont and the Making of the Modern Corporation. In 1977 he published what was his most famous book, The Visible Hand: The Managerial Revolution in American Business. The book was a culmination of Chandler's thinking on the operation of American business and earned the Pulitzer and Bancroft prizes in 1978. These were not the only honors Chandler garnered. He was a member of the American Philosophical Society and a Fellow of the American Academy of Arts and Sciences. In 1977-1978 he served as president of the Business History Conference. The most fitting accolade is that of John Higham, who exempted Chandler from "the deadly blight" which had prevented other senior historians from doing their culminating work in the 1960s and 1970s. Since that time he wrote The Essential Alfred Chandler: Essays Toward a Historical Theory of Big Business (1988), and his Scale and Scope: The Dynamics of Industrial Capitalism was written with the assistance of Takashi Hikino (1990). Scale and Scope was hailed as an indispensable historical reference spanning three-quarters of the twentieth century. In the book Chandler compares the European business environment with that of the United States. He evaluated the significance of business structure to performance and success in the marketplace. Chandler was dubbed the "dean of American business history" by Financial World in 1991. Alfred D. Chandler, Jr. retired from the Harvard Business School on June 30, 1989. Further Reading There is a scarcity of material on Chandler. John Higham's favorable comment is from the epilogue of his 1983 edition of History, but it is only a brief consideration. Equally brief are the references to Chandler in Georg G. Iggers and Harold T. Parker, International Handbook of Historical Studies (1979). Additional Sources Chandler, Alfred D. Jr., The Essential Alfred Chandler: Essays Toward a Historical Theory of Big Business, Harvard Business School Press, 1988. Chandler, Alfred D. Jr., Scale and Scope: The Dynamics of Industrial Capitalism, Belknap Press, 1990. Forbes, November 13, 1989. The New Republic, December 10, 1990.